My situation and a time-sensitive question

[pheezy]

Hello! I am new to these boards but have been reading them a while; but now I face a choice whose outcome I am not very sure about. I have done some reading on the subject of personal finance and am pretty far behind...but you will find that out soon enough.

Background

Income

Graduate from college, landed a job off of Craigslist, have gotten a $18,000 raise in less than a year (been with the company for about 2 years), so doing pretty well in income I think (upper-mid 5 figures).

Single, no car, etc

Debts

Student Loan with a balance of $29,816 locked in at a 3.5% interest rate (~$280/mo)
Motorcycle Loan with a balance of $9429 locked in at a 11.49% interest rate (~$200/mo)
Stolen motorcycle loan with a balance of $2496 locked in at a 9.5% interest rate (~$140/mo)

The stolen motorcycle loan was for my first bike which was stolen from me; I was unaware and stupidly let the insurance lapse, so when it was stolen I just have to eat the cost. Paying for a dead horse if you will.

Assets
$1000 emergency fund in a high-interest online savings account.

Assumptions

My current plan is to pay off the stolen motorcycle loan by the end of the year, then focus on the other loan. I don't see myself ever paying more than the minimum on the student loan since it is at such a low interest rate.

I also need to start saving some for retirement, so I will probably go with a Roth IRA because even though my company has a 401k, they do not match funds so I don't really see the point of putting money in there. But after these debts I will probably start that, maybe just add a little now, not sure yet.

Question

My lease is up at the end of the month. A friend of mine has decided to move to my city and I offered to room with him to save some money. This is all good, but by basically doubling how much money there is now towards rent, I can either rent a nice place, or buy a house.

The market in my city (Austin) is still appreciating in the single digits, so I'm not sure if it is going to take a dive but I think it is less likely than other areas of the country. It might be a risk worth taking though, I'm not sure, but I have read that the markets are supposed to slump much more in the next few months.

So, should I buy a house or condo? My rough estimates with a lender show that my housing expense would be roughly the same as it is now (with a roommate), possibly $100 more; but I should also still be able to meet my other savings goals.

I will also need a car here very soon, by the end of the year for sure, so this is something else I have to consider.

I'm wondering if I should get a house because A) I would get some equity going on instead of throwing money away, and B) the housing expenses (minus repairs etc) would be comparable to what I am paying now. And since now I have less than 30 days to decide, I'm kind of in a crunch. It's either a "buy now or wait another year and see what happens type" deal. I do need to get more aggressive with saving, but if everything worked out (assumptions mostly based on the Austin housing market), I could still do this and gain some equity.

What should I do? I'm so confused.

[safari]

A few things. You only mentioned your $1,000 emergency fund. Are those all your savings? That's not enough to survive even one month. A typical emergency fund should cover 3-6 months of all your living expenses. I think you should forget about buying a house until you have a sufficient emergency fund and enough money for a 20% downpayment. Rent a bigger place, so you can share it with your friend. Since your rent payment is going to be twice lower compared to what you're paying now, that will allow you to quickly build up your emergency fund and also start saving money for a house. Also, why do you want to pay off your stolen motorcycle loan first? You should be putting more money toward your new motorcycle loan, since it got a higher interest rate. I don't know how much motorcycles cost, but your remaining balance of $9,429 is a lot of money. You could buy a nice used car for that kind of money. You said you are planning to buy a car soon; are you still going to keep your motorcycle or sell it?

[pheezy]

$1000 is certainly not enough, but I read about the snowball effect as a way to pay down debt, and that $1000 was a good starting point. I was planning on adding more to the emergency fund after I had paid down my debt. Is this not a good way to do it?

I was going to pay off the smaller loan first because it's smaller and I can get it out of the way much much faster, thus feeling like I have accomplished something, and secondly because I'm paying interest on something that I don't own anymore. Then I can divert all that money towards the bigger loan. If you figure $1000 towards both of those loans, its $30 more in interest if you pay them off by high interest versus balance, but the other way gives me some peace of mind sooner. It's stupid, I know, but I would feel better about it. :|

I would be keeping the motorcycle; it will probably be a cheap and older but reliable truck (like a Tacoma or something along those lines) so I can put the motorcycle in the back and take it to track days and races more often.

Or so the dream goes...

I think you are right about the house though and I will probably just rent again.

[cptacek]

I think you have a great plan. You are single, you are just out of college, and you don't have that much debt. You are used to living like a poor college student, and if you continue that for another year while making what you make, you can really get some of that debt knocked out. $1000 seems small to people who have mortgages, car payments, wives/husbands and kids, and like to eat better than Taco Bell or Ramen noodels every night. But, if you just got out of school, then you aren't used to the creature comforts yet...just try to hold off on getting used to them until you pay off some of that debt. I guess what I am trying to say is, for now $1000 may be enough, but as you become responsible for more and more, that will need to grow.

I agree with you not putting money into a 401(k) right away, but instead putting it into a Roth IRA. After you fully fund the Roth IRA, then look into the 401(k). If you fund the Roth IRA, that could, in an extreme emergency, become like a secondary emergency fund, because you can take out the principal at any time.

I also agree with you not paying more than the minimum on your student loans...locked in at 3.5% is awesome. But, I agree with safari about paying the higher interest rate first. If you don't have a cash flow problem, always pay the higher interest rate first. if you need motivation, create an amortization table that will show you how much you saved by doing it that way. Or keep track of the total debt, and when you pay something to the higher interest rate, it will drop the total AND be the mathematically smart way to do it.

[autoxer]

I also need to start saving some for retirement, so I will probably go with a Roth IRA because even though my company has a 401k, they do not match funds so I don't really see the point of putting money in there. But after these debts I will probably start that, maybe just add a little now, not sure yet.

The 401k still has tax benefits, but I agree that a Roth IRA would be a better place to start, because it is more flexible.

I'm wondering if I should get a house because A) I would get some equity going on instead of throwing money away

I don't think you should buy yet. One reason is that you don't have a downpayment. When you have a 100% loan, you aren't building equity very fast, because you are 'throwing money away' at PMI &/or a higher interest rate.

That would also make your payment dependent on the roommate. What would happen if your roommate lost their job, or just wasn't good at paying rent. Or they moved out. Would you be able to afford the payment on your own?

If you rented a cheap place, then you could really knock out those debts. Right now, you are paying >$100 a month just in interest on your two motorcycle loans. If you are tracking that bike, then you should definately get that paid off quick. Imagine how you would feel if the bike was wrecked at the track & you are stuck with two motorcycle loans and no motorcycle. I love the track also, but I had a reality check a couple years ago, when I spun my daily driver around @ 70mph. I luckily on slid across the grass, but I saw a few people take their cars home all banged up. I would of been stuck with a big car payment, with nothing to drive...

[jIM_Ohio]

I would look to pay off debt before buying a house.

[lynclarke]

OK- "upper mid 5 figures"- that means $60,000 to me- You need to look at your monthly expenses. What are you paying for rent? insurance? food? utilities? You should be taking home about $3000/month after health ins, life insurance, ? commuter pass?
outstanding debt $620
rent - 25% take home $750
cycle insurance $100??
food $200??
house stuff $100
gas $100??
utilities TV,etc $125 ??
long term savings $300
short term savings $100
spending $$ $100
cell phone $ 75??
renter insurance $ 25??
house savings acct $300

NO way can you afford a house and a car. IMHO. You need write out a detailed budget - way more detailed than the little scribbles I just did.

[pheezy]

Thanks all for your encouraging words. It seems I have budgeting work ahead of me! After speaking to you all and some friends, I have decided I will go ahead and crush these debts with a giant frugal hammer, and then work on saving for a house in a year or two. C'est la vie! Thanks again.

[Ima saver]

Good plan, and try to save as much as you can for the down payment on your new home.

[Daniel_Shop]

Assets
$1000 emergency fund in a high-interest online savings account.

Oh no dear! I hope it is not High Yield Investment Programs because they are all scams.

I hope you get your money out of there as quick as possible. Can you please give me the Website link?